Oil Industry Shares

Earlier I suggested that we were in a short term broadly-based market correction. However, when I look out to the longer term, my unique price momentum models suggest that companies in the oil and gas industry should do well in spite of the short term correction. A sampling would include CVX, APC, BR, BHI, BJS, and HAL. I'm sure there are many others as well.

Share prices for companies in strong underlying uptrends tend to go sideways during general market corrections.

GPS Gap Inc.

On August 20th and again on September 12th I wrote about what I saw as a pending short term market correction, and I made specific reference to my view that retail stocks looked ugly. Many retail shares have sold off sharply since then, and GPS ($17.19) is among them.

In spite of its recent severe share price decline, the GPS picture still looks ugly among retailers, most of which are still selling off. These include AEOS, BBBY, BBY, CC, COST, FD, HD, JCP, LTD, SBX, WAG and WMT.

SPX S&P 500 Stock Index

The S&P 500 Index (1215) is hanging on by its fingernails above its 200-Day Moving Average, which is at 1199 as I write. It has bounced off this moving average on two earlier occasions since mid-year.

The longer term pattern remains in an uptrend, and is gradually losing momentum as the months roll on.

While there is nothing to prevent another bounce from the 200-Day Moving Average on the short term, I will feel more comfortable when we have moved below it to the 1150 area.

Newmont NEM Technical Analysis

On my monthly chart the NEM share price is very close to an important downtrending resistance trendline that extends back to the year 1987. Beyond the near term, the underlying math models remain strong for resource stocks, and Newmont is no exception. This would suggest that we might see a breakout here after a suitable period of indigestion. A breakout would of course be considered extremely bullish given the prominence of the trendline.

On the other hand, a failure at resistance would produce what would begin to look like a well defined head and shoulders technical signature with negative implications. I would expect the math models to confirm if this scenario begins to emerge.

Just a heads up at an important fork in the road for Newmont. ($46.20 U.S.)

General Electric GE Technical Analysis

Just a note to make the observation that the GE share price quietly broke down through its 200-Day Moving Average back in June. Shares are now recovering in what appears to be a breakdown pullback pattern. This is noteworthy because GE is considered by some to be the most important bellweather in U.S. markets.

After an orderly 200-Day Moving Average breakdown, and a price pullback to the underside of the moving average, we often see the commencement of a determined correction. It's certainly worth watching at this time in the case of bellweather GE. ($33.55 U.S.)

Walmart WMT Technical Analysis

My monthly Walmart chart shows an August technical breakdown through a rising support trendline that extends back to the early 80's. The shares have moved sharply lower since then, which lends credence to the validity of what appears to be a serious breakdown. ($42.49 U.S.)

Gold Futures (U.S. $459.50)

Gold has nudged above my $456 short term target high (some reports show an intra-day max approaching $470), and it is now due for a rest in a powerful long term uptrend. The commodity has a habit of making stunning spike highs followed by equally exciting setbacks. We are finishing an upward spike now. Hold onto your hats once it turns to complete its next short term correction.

Tech Talk Dell ($34.65 U.S.)

My monthly chart shows that Dell's share price has poked down below an uptrending support trendline that extends back to early 1990.

Market Comment (S & P 500 Index 1241)

I have already said I'd like to see a healthy short term market correction almost across the board, but let's talk a bit more about what's out there beyond the near term.

I'm looking for oil and gas to continue in a powerful long term uptrend once a sharp short term correction is in place. In the resource area, I also like the long term outlook for base metals, gold and copper. It makes sense that the long term CRB Index trend looks good as well (Commodities Research Bureau).

I had said earlier that several U.S. senior banks show negative long term prospects from a price momentum perspective. With regard to the banks I am now seeing news reports suggesting that the flattening yield curve is putting the squeeze on profits. ( I try not to comment on fundamentals, but it's hard to resist when they come along after my forecast is in place.)

I'm looking at negative long term price momentum forecasts widespread among retail issues that have performed well in recent months. A sea change in retail prospects ahead?

S & P 500 Index (1241)

In late July I said that the S & P was drifting higher toward a 1270 area target in an otherwise quiet market. It's been quiet all right. Since then, we have set back 35 points and gained 41 points, for a net advancement of 7 points in a month and a half.

On August 20th I said that I was concerned about too many individual stocks moving into a period where short term tops were becoming evident. We are still building what I would call a short term market top, and I am still looking for a correction once my nearby S & P target objective has been met.

Natural Gas U.S. Futures ($11.25)

The price of natural gas had made spike highs three times in the eighteen months prior to the most recent price run-up. If previous events are any guide, they suggest that we may be passing a fourth spike high price as I write today. If this turns out to be true, we should look for a quick retracement to the $8 to $9 area, followed by another base building process to take us to the next spike sometime in 2006.

As I see it, these price spikes are noise in what would otherwise be recognized as a strong longer term uptrend.

Oil U.S. Light Crude Futures ($67.57)

I have been talking about a $70 intermediate term price target for oil since mid-August, and now we have seen it. I also suggested that once a $70 top was in place (it may take several weeks to complete a top), we could see a meaningful correction. Steep uptrends tend to spawn quick knee-jerk corrective adjustments as they proceed. These setbacks have dropped the price of crude below its rising 200-Day Moving Average twice during the past year. If it happened again in the weeks ahead, we could briefly see the $55 area.

Beyond the intermediate term, the longer term price momentum models show a powerful uptrend functioning in an overbought environment. This can be expected to persist until an intermediate term correction is abrupt enough to alter longer term price momentum calculations.

It took the tragedy of Hurricane Katrina to push oil to my $70 target. I don't make any attempt to forecast the events that might unfold to justify my price targets. However, if I were to speculate just once on why we might correct from here, I would guess that a short term price setback might occur if the massive oil and gas pipelines out of New Orleans return to full capacity earlier than expected.

Canadian Dollar Futures (84.18)

It would appear that over the short term we have exhausted an abrupt upward thrust. This could signal the beginning of an intermediate term correction for the Loonie (the nickname for the Cdn Dollar). Support in such a correction would be in the area of 80 cents.

The longer term outlook for the Loonie remains positive.